Fluence Energy, Inc. (FLNC) Earnings

Management highlights

### Record Order and Backlog Growth - Q3 2026 order intake hit $1.44 billion, nearly triple the $509 million order intake in the year-ago quarter. Total year-to-date orders are 80% higher than the prior year, and management expects Q4 2026 order intake to reach another new record. - Ending contracted backlog grew 14% quarter-over-quarter and more than 30% year-over-year to a record $6.4 billion. Total pipeline increased 1.6 billion quarter-over-quarter to $33.1 billion, with a growing share of new opportunities coming from the U.S. market driven by the data center segment. ### Data Center Segment Expansion - Fluence secured its first data center customer orders this quarter, including a $300 million behind-the-meter project with a developer referred by an existing hyperscaler partner. The sales cycle for this developer order was just 3 months from lead to signed contract, far faster than Fluence's traditional utility/IPP segment. - The data center pipeline has grown 35% quarter-over-quarter to 16 gigawatt hours, spanning both hyperscaler and developer customers. The $550 million in hyperscaler awards received in July are expected to convert to signed orders in the coming months. - Fluence's key competitive advantages for data center customers include its SmartStack product platform with high energy density, and its proprietary operating system that enables efficient load management and low voltage ride-through capability, both critical for data center power reliability. ### Supply Chain Expansion and Operational Changes - Fluence is expanding global contracted manufacturing capacity to meet growing demand, but ramp-up delays at two new facilities caused Q3 2026 revenue to come in $90 million below prior expectations, pushing some planned 2026 deliveries into 2027. - The new 15 gigawatt hour per year automated facility in Houston, U.S. experienced construction, utility connection and automation equipment delays. Limited production has commenced, and full production is expected in Q1 fiscal 2027. A new international manufacturing facility had initial production that failed quality standards; corrections have been implemented, full production has been achieved, and shipments have resumed. - Roman Loosen, a 20-year Siemens operations and supply chain veteran, has been appointed Chief Enterprise Operations Officer to lead an expanded, experienced supply chain and manufacturing management team to strengthen execution and scale processes for higher volume. ### Product Innovation - Fluence's SmartStack product platform represented 75% of year-to-date orders. The company recently launched SmartStack 10, which increases unit energy density from 7.5 MWh to 10 MWh. The platform's upgradable design allows Fluence to quickly adapt to evolving customer needs.

Guidance

- **Fiscal 2026 Revenue Guidance**: Revised to a range of $2.9 billion to $3.1 billion, with a midpoint of $3 billion, representing a $400 million reduction from the prior guidance midpoint, almost entirely due to manufacturing ramp-up delays that pushed revenue recognition into fiscal 2027. - **Fiscal 2026 Adjusted EBITDA Guidance**: Revised to a range of negative $30 million to positive $10 million, with a midpoint of negative $10 million, a 60 million reduction from the prior guidance midpoint. The reduction is driven by $44 million in lost margin from delayed revenue and a $15 million one-time charge associated with a new long-term battery supply agreement. - **Fiscal 2026 Annual Recurring Revenue Guidance**: Maintained at approximately $180 million by the end of the fiscal year. - **Liquidity Guidance**: Total liquidity ended Q3 at ~$863 million, and management expects it to return to the $900 million level by the end of fiscal 2026. To support expected high order growth, an additional $300 million to $500 million in working capital may be needed in fiscal 2027, and management will pursue disciplined financing only for clear profitable growth opportunities. - **Fiscal 2027 Backlog Conversion Guidance**: Management expects the historical 80% to 90% backlog conversion rate to remain appropriate for fiscal 2027, with no major new capacity additions planned that would create additional execution risk.

Segment performance

Fluence Energy reported Q3 2026 total revenue of $650 million, an 8% increase year-over-year. Of the $1.44 billion in total order intake for the quarter, $850 million came from the new data center customer segment, including a $300 million signed order from a data center developer and $550 million in awarded contracts from a hyperscaler that have not yet been converted to signed orders. Year-to-date through Q3, total orders reached $2.7 billion, 80% higher than the prior year, with utilities and independent power producers (IPPs) accounting for approximately 90% of total year-to-date orders, and the data center segment accounting for the remaining 10% of year-to-date orders. Total contracted backlog ended the quarter at a record $6.4 billion, with approximately $2.2 billion of backlog expected to convert to revenue in fiscal 2027.

Risks & headwinds

- Ramp-up delays at new contracted manufacturing facilities have resulted in lower-than-expected near-term revenue and margin, and unforeseen issues with new capacity could create further execution risk in future quarters. - Increasing regulatory restrictions on power electronics components (such as inverters) in the U.S. and Europe could create supply chain challenges for companies that rely on imported Chinese components. - The fast-growing data center segment is new for Fluence, and long-term conversion and margin trends are still emerging, creating uncertainty around future performance of this segment. - While the new supply chain capacity is expected to support long-term growth, scaling operations to meet rapidly increasing demand creates ongoing execution risk.

Analyst Q&A

• Q: Can you provide more detail on the root causes of the recent production delays at your new manufacturing facilities?

  A: One new international facility producing SmartStack components failed initial quality testing, requiring a production shutdown and corrections to meet standards. The issue is fully resolved, and the facility is now fully ramped, but lost production volume for 2026 could not be recovered. The new Houston U.S. facility experienced sequential construction, utility connection, and automation equipment delays that compounded to push volume into 2027. The facility has started limited production, will connect to the grid imminently, and is on track to hit full production in Q1 2027.

• Q: What is your update on commercial traction in the data center segment, and what drives your competitive wins there?

  A: Fluence currently holds two master supply agreements with two separate hyperscalers. The $300 million signed order this quarter is from an independent developer building a data center for one of these hyperscalers, and the $550 million in awards are directly from one of the hyperscalers, expected to convert to signed orders in coming months. Traction has outperformed original plans, driven by competitive strengths: high density, reliability, and the proprietary operating system that enables efficient load management and critical low voltage ride-through capability for data centers. The company is also pursuing international data center opportunities leveraging its global footprint.

• Q: How does backlog conversion for the new data center segment differ from your traditional utility/IPP business?

  A: Data center projects have much faster cycles than traditional projects. The first developer order converted from lead to signed contract in less than three months, and conversion to revenue recognition is also expected to be much faster than the historical 12 to 18 month conversion cycle for traditional projects. Traditional utility and IPP projects still follow the historical 12 to 18 month conversion cycle, with revenue recognized on a milestone basis over that period. The faster data center cycle will accelerate the overall company conversion rate.

• Q: Are you seeing the same margin pressure in energy storage that a larger peer recently reported?

  A: Fluence remains comfortably within its long-term 10% to 15% adjusted gross margin target for backlog and new orders. Even after one-time charges this year, core margins are around 12%, in line with expectations. Management does not see the same margin pressures the peer reported, and suggests the pressure may stem from that peer's specific cost structure, as Fluence's primary current challenge is scaling operations rather than inherent margin pressure.